One of my clients recently sold her home in McKinney and moved into an apartment. The decision for her was easy, she’d rather pay rent than deal with the cost of a home’s upkeep. The big question we needed to work through was how much renters insurance does she need? She is, after all, downsizing and won’t have as much stuff, or personal property, as she has in her home. Here’s how we approached.
I began the discussion with contrasting the difference between a homeowner’s and a renter’s policy. All homeowner’s policies will contain some level of personal property or contents coverage. This is usually a percentage of the amount of coverage on the home. For example, a home insured for $200,000 may have anywhere from $80,000 to $140,000 in contents coverage based on the percentage the insurance company uses.
When it comes to renter’s insurance, there’s no such percentage of coverage since there is no coverage for the home, duplex, condo, or apartment. The main thing the renter’s policy is concerned with is the amount of coverage required to replace their personal property. That’s when the prospective client asked how she should go about determining the value of what she has. It’s an excellent question and one many renters ask depending on their life situation.
I suggested she stand in the middle of each room and make a list of all the furniture, electronics (TVs, computers, smart phones, tablets, etc.), throw rugs, and decorative items. Include clothing, linens, seasonal decorations, dinner and cookware, glasses, and even items in the cabinets, pantry, and refrigerator. Also include any lawn and garden equipment if that’s applicable.
Think about what you paid for the larger items such as a sofa, side chair, bed, dresser, or TV. Assign a value to each item either based on what you paid for it, or if a gift, what it may have cost the giver. Check stores and websites where you shopped to replace items you purchased new, and garage sales, thrift stores, and Craigslist for items you may have purchased used to help determine a value. The goal is to determine what it would take to replace everything if it were lost in one event such as a fire or tornado. While you’re at it, take pictures of each room and its contents to create a home inventory (see https://wiseinsurancegroup.com/do-you-have-a-home-inventory/ on how to create one and why).
Once you have everything totaled, or have created a rough estimate, use that as the amount of coverage needed for your renter’s policy. If you’re just starting out, you may only have a $5,000 to $10,000 worth of personal property. Some insurance companies have minimum amounts of coverage such as $15,000 or $20,000. Start with the minimum because most people begin to add things over time.
Keep in mind if you are fairly established and have items such as original artwork, fine jewelry, silverware, etc. you should probably schedule those items to protect them to their full value. Most renters, and homeowners, policies have limits on the amount of coverage they’ll provide for these items. It’s pretty common to see limits capped at $2,500 total or less for items in a particular category.
Other coverage limits to address are medical coverage and personal liability. While many policies will provide minimal limits such as $500 on medical and $50,000 on personal liability, you can have better coverage for a couple of dollars a month that will protect you financially if something happens to a guest or worker in your home.
My new client did an initial assessment of what she had, but was unsure of a total value. To help her decide what would be appropriate, I provided her with three quotes showing her three different amounts of coverage consisting of an entry level she specified and two higher limits to give her choices. She picked the high limit option to give her the peace of mind she desired and because it was only a few dollars more per month.
How much renters insurance do you need? Share how you approached this along with any questions or comments you have with me on my Google +, Facebook, and LinkedIn pages. I’d love to hear from you!